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Companies Struggle to Keep Up with Incentive Regulation

The regulatory environment and tax codes have an impact on non-cash rewards and recognition programs, but many program managers aren’t clear on how to comply with the rules. That’s the bottom line from a new study released by the Incentive Research Foundation, the McLean, Va.–based organization that studies and promotes incentives in business and industry.

The study’s 419 respondents, about a quarter of whom work in the financial services industry, were asked about their understanding of various regulations that touch on non-cash reward and recognition, from the Department of Labor’s Fiduciary Rule and Section 274(j) of the Internal Revenue Code, to the Fair Labor Standards Act and rules on reporting fair market value of rewards. Overall, awareness was high; deep understanding was low, but organizations are making an effort to keep up.

“Most program owners understand their reward and recognition activities are impacted by the regulatory environment, but struggle with the detailed implications” said Melissa Van Dyke, IRF president. “Not surprisingly, over half of U.S. businesses have increased the dollars invested into programs to accommodate changes and close to half have increased staff support. We anticipate more and more resources will continue to be dedicated to understanding and accommodating regulatory requirements.”

The full study, U.S. Federal Regulations and Non-Cash Awards, is available from the IRF. Here are five key findings:
• 67 percent of program owners are aware there are regulatory considerations for their programs
• 38 percent of program owners consider themselves very knowledgeable about regulations and tax requirements.
• Fewer than two-thirds of U.S. businesses have formal compliance mechanisms to address regulatory and tax requirements.
• Half of U.S. businesses made eight or more changes to program design based on the regulatory environment in 2017. The most common changes are reworking the underlying business purpose of the program and changing what participants can win.
• Financial services firms are more likely than other kinds of companies to make additional changes, including eliminating the program, shifting from gift cards to other non-cash awards, and increased staff support to accommodate the regulatory environment.

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